Final Financial Farewell to 2023

Oh, what a year for investors. The U.S. government suspended its debt ceiling. Mysterious balloons floated over America. WHO ended its COVID-19 declaration of a global health emergency. The Federal Reserve hit the pause button on its most aggressive rate hikes in decades. Geopolitical turmoil continued with war in Ukraine and the outbreak of an Israel-Gaza conflict.

On the lighter side, the Kansas City Chiefs dramatically won the Super Bowl. The Queen of Pop Music, Taylor Swift, became a billionaire as she kicked off her record-breaking Eras Tour (and took time for romance with a star player on the Chiefs). Meanwhile across the pond, Charles II and his wife, Camilla, became the first new King and Queen of the United Kingdom in 70 years.

As an investor, let’s examine some noteworthy news from 2023 and take a peer ahead for 2024 (sources: Bloomberg Finance, Forbes, J.P. Morgan Wealth Management).

AI Tech Arms Race Took Off

OpenAI launched GPT-4 and the artificial intelligence (AI) arms race was off and running. Major updates and new models were hitting the headlines nearly every month. To quote a very old movie line, “You ain’t seen nothing yet.” Count on the AI tech revolution to accelerate as more companies find ways to take advantage of the biggest tech change since the invention of the world wide web..

Crisis Avoided Despite Q1 Bank Failures

Investors were understandably nervous when Silvergate Bank voluntarily liquidated, and Silicon Valley Bank failed. U.S. banks posted their worst daily performances since 2020. Then UBS bought Credit Suisse in a government-backed deal and JPMorgan took over First Republic. Many worried the financial contagion would spread, but regulators moved quickly to protect the overall financial system.

Interest Rates And Inflation Appear To Have Peaked

A major trend for the year was the push-pull of high inflation and high interest rates. In May the consumer price index (CPI) officially marked a halving of inflation. The Federal Reserve has signaled rate hikes are over and cuts are in the offing. Stay tuned.

Washington Continues To Wrangle Over Finances

The political parties in Washington DC continued to practice brinksmanship and the federal government was threatened multiple times with a shutdown. However, a stoppage was avoided each time. The political gamesmanship did affect U.S. credibility with the ratings agencies, which could result in an increase in consumer borrowing costs.

Economy Shrugs Off Recession Fears

Recessions are a fact of financial life. A record number of CEOs said they expected a 2023 recession.  But the recession many fretted over never arrived for a number of reasons.

Markets Soar Despite Turbulence

During 2023 the S&P 500 marked a 20% rally from its October 2022 lows. The markets flexed strength in 2023, a reversal of the 2022 heartburn. U.S. equities and world equities are up more than 20%. U.S. aggregate bonds posted their best monthly returns since 1985.

Trends To Note For 2024

The market is signaling a paradigm shift. As we enter 2024, inflation across the developed world has more than halved. A year ago, the chairman of the Federal Reserve said it would “stay the course” with rate hikes. Now the implication is the Fed might cut rates three times in 2024. Inflation will likely settle. Stocks will likely march to new highs. Bonds will likely be more competitive. The credit stress will likely be limited to areas such as commercial real estate.

Again, the operative word is likely. Nothing is ever for certain except change.  This recap is intended to provide general information to help you understand basic financial planning strategies and should not be construed as financial advice.  Sad to say, all investments are subject to risk including the potential loss of principal. No investment can guarantee a profit or protect against loss in periods of declining values. That’s why it pays to stay educated.

One last piece of good news. The IRS has new contribution limits for 2024. The 401(k)/403(b) employee contribution limit increases to $23,000 and the IRA limit increases to $7,000.  So, we all have that going for us. Best wishes for a prosperous 2024.